Wednesday, June 17, 2009

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Doesn't she understand that Krugman didn't write "we need to create a housing bubble".....he wrote, "Alan Greenspan needs to create a housing bubble"....as in the FED. He was dead-on correct, even if he he didn't chime-in his opinion that a housing bubble is bound cause another recession down the road.

Krugman's point is dubious, since creating a housing bubble is something like saying you're going to help the economy by having everyone taking out giant mortgages and paying a huge percentage of their income to lenders/investors over the next 15-30 years in exchange for a short-term stimulative effect. It also has the secondary effect of raising rents and putting pressure on the lower and middle class at a time when you want them to save and invest, reducing the amount they have to spend in other sectors of the economy. If it was an intentional plan, ugh.

But Megan calling out other people for bad predictions? Uncool. Stones, glass houses, tossing said stones. Terrible.

Reading comprehension has never been one of McArdle's strong suits. But this is funny. She really thinks an economist like Krugman was advocating a housing bubble. Every economist knows that bubbles, by definition, are bad--they're distortions; they collapse. Except for Megan.

About us

McMegan is awful, just awful, but at least she's no longer employed by The Atlantic. Still, no one can read her every day and live, so we've all but given up trying. Let's just be glad her upwards failure has leveled off.Posts here will likely remain few and far between, as will my tweets. M. is still at his place and twitter and now also Whiskey Fire, and Clem maintains well deserved alumnus privileges.